Sino-Forest restructuring approved despite opposition from funds

An Ontario judge has approved a restructuring transaction in which the assets of Sino-Forest Corp. will be transferred over to the company’s bondholders.

The decision was made despite last-minute opposition from a group of institutional shareholders, who were upset about how the deal is structured. The transaction includes Ernst & Young’s LLP’s proposed $117-million settlement of class-action claims related to Sino’s collapse.

The shareholders, which include Trimark Investments, Comité Syndical National de Retraite Bâtirente Inc. and Northwest & Ethical Investments LP, want the option of opting out of the settlement and suing Sino on their own. If the settlement is approved, they would not have that option. They asked the court to either delay approval of the restructuring, or carve out the E&Y settlement.

Last Friday, lawyers representing Sino’s other stakeholders argued in the Ontario Superior Court of Justice that the E&Y settlement still needs further court approval. Therefore, the investors can challenge it at a later date without needing to halt the restructuring transaction.

Justice Geoffrey Morawetz agreed with that perspective. “The arguments put forward by counsel on behalf of the funds are premature,” he wrote in a decision released Monday night.

John Mountain, senior vice president of NEI, said he was still happy with the result, which clarifies that the E&Y settlement is not a done deal. “We are thrilled with this decision that at this point there is no limit on the potential liability of any of the other defendants. It is a great decision from our perspective,” he said in an emailed statement.

The three shareholders hoping to opt out of the settlement own about 1.5% of Sino-Forest shares. They are represented by Kim Orr Barristers PC, which tried to win “carriage” of the Sino class action claims but lost out to Siskinds LLP and Koskie Minsky LLP.

Getting the restructuring transaction approved quickly was crucial, lawyers said Friday, as the company’s business is on the verge of complete collapse in China.

While E&Y has settled, Siskinds and Koskie Minsky are still pursuing claims against the other defendants, which include Sino-Forest itself, former officers and directors, BDO LLP, and the firm’s numerous underwriters.